The Economic Climate for Charitable Giving

Much has been written about the dizzying complexity of the health of the economy recently. Less known is how U.S. consumers, including charitable donors, feel about it. Giving Sciences has some hot-off-the-press research representing U.S. consumers, including active donors to charitable causes. This giving barometer is intended to help nonprofit organizations identify opportunities for revenue growth in the current economy.

Inflation

The rate of inflation is cooling in 2024 and is down from 2022 highs, but the high cost of goods and services remains a topic of concern. While the annual, 12-month rolling increases have been around 3% higher than last year, and slowed to 2.9% in July, the impact we’re all feeling is cumulative. In the past five years, the full pinch (punch?) of inflation in the Consumer Price Index (CPI) is 23%, according to the Bureau of Labor Statistics (BLS). However, the prevailing sense from consumers is that prices today feel much higher than 23% above pre-pandemic levels.

Among the many factors contributing to inflation, the price of gas stands out, having risen by approximately a third over the past five years – one of the most significant increases in the index at 32%. This is an increase we are regularly reminded of at the pump. The food category has also seen an above-average increase in the CPI, with incredulous videos highlighting the ubiquity of high food prices continuing to trend on social media.

The stock market and investment banks anticipate an interest rate cut in September, which is predicated on several factors including the continued decline in inflation towards the target level of 2%. Consumers and donors aren’t as optimistic. According to the Giving Sciences Barometer fielded in August, just a third (34%) of U.S. consumers believe inflation will drop in the coming months. Nearly half of consumers (47%) and 43% of charitable donors don’t expect inflation to drop any time soon.

Inflation’s Impact on Giving

Consumer spending, which is responsible for roughly two-thirds of U.S. economic output, or GDP, is lower in 2024 YTD. This reflects sustained inflationary pressures and lower levels of available dollars, particularly at lower income levels. Discretionary spending in particular remains lower compared to 2021 levels. Charitable giving, traditionally classified as discretionary, is impacted by inflation in much the same way as consumer spending.

The Giving Sciences Barometer found that 58% of charitable donors reported giving less to charitable organizations in the past 12 months due to inflation. This percentage has increased from 50%-53% in 2023, reflecting the cumulative impact of lower discretionary dollars due to inflation.

Stock Market Wobbles

It was a market watch nail biter early August when the S&P 500 dropped 3% on a Monday – the largest one-day drop in approximately two years – then was back up by that Friday. However, stepping back to see the full picture, year-to-date through mid-August, the S&P 500 is up by approximately 15%, and up around 90% over the past five years.

A rising stock market contributes to the growing wealth divide by benefiting those who own appreciating financial assets such as stocks and bonds. As this gap continues to grow, the growth trend in major giving will persist as long as asset markets remain elevated.

The real question is how long the market can remain elevated before facing a correction. Recently, bearish investors pointed to Warren Buffett’s Berkshire Hathaway for selling substantial positions to boost cash reserves, suggesting he anticipates a stock market downturn and is preparing to buy discounted stocks. According to an analysis by Semper Augustus Investments, Berkshire Hathaway’s current cash position stands at 17.5% of total assets, only slightly above its long-term average of 13%. This suggests a cautious approach toward a potential correction rather than an expectation of a major crash. Predicting the future, however, remains notoriously difficult.

Recession Fears

Goldman Sachs puts the likelihood of a U.S. recession in the next 12 months at 25% (up from 15%) following a troubling July jobs report from the BLS. JPMorgan raised its probability of a recession in 2024 to 35%, up from 25%. According to the Giving Sciences Barometer, 51% of U.S. consumers, and 56% of charitable donors believe a recession is likely in 2024. Compared to last year, the donor economic nervousness remains at the same level, while the rate for consumers has dropped five points.

High-income households, crucial to major giving programs, are more likely to anticipate a recession this year. Nearly two-thirds (65%) of households earning $150K or more – representing the top 20% of U.S. households – believe a recession is imminent.

Giving Sciences Barometer: Fundraising Implications

1. Maximize Major Giving
Many charitable organizations have seen drops in their direct response fundraising, particularly since the pandemic highs. Relational and major giving has been growing, and along with it a larger proportion of total revenue raised. This has added a stabilizing element post-pandemic and contributed to more revenue raised compared to pre-pandemic 2019 levels for a majority of charitable orgs.  

With market uncertainty continuing to loom, and this higher income segment primed for believing a recession is near, now is a great time for relational fundraising to encourage donor support to lock in on historic highs for donating appreciated assets through real estate, stocks, or Donor Advised Funds (DAFs).

The title of a research paper by John List and Yana Peysakhovich in 2011 says it succinctly: “Charitable donations are more responsive to stock market booms than busts.” The window of opportunity for profit-taking in the current stock market boom may be closing, making it a strategic time for donors to lock in gains. Doing so could allow them to make more impactful contributions to the organizations they support.

2. Communications that Change with the Times
At its core, giving responds to need. Pandemics, wars, natural disasters, or the local school needing new computers. A very relatable element for families and nonprofits is the higher cost of services due to inflation. Are those messages being communicated through your digital and print messaging to donors and prospective donors? Are you using press and community relations to amplify your compelling message? Conducting creative and message testing research can identify the best wording, visuals, and medium to reach your audience(s).

One of those key audiences should be monthly, sustaining donors and prospects. Attitudes measured through research and quantified through behaviors show that prospective monthly donors are more motivated by donor-centric vs. organizational-centric messaging. For example, assurances of the ease of changing, pausing, or canceling monthly support can be more impactful to conversion than speaking to the cost efficiencies of monthly giving to the organization.

Methodology
Giving Sciences conducted the Barometer survey online via a research panel, targeting U.S. Census representation on age, gender, region, and race/ethnicity for adults 18+. N=527 respondents completed the survey early to mid-August.  

For more strategies on leveraging the current giving climate for opportunities for your program, reach out to Giving Sciences.